top of page

Private vs public company equity compensation: why it feels so different

Private and public companies often use the same equity instruments, but the experience can feel completely different. Valuation, liquidity, and tax collection work very differently depending on the environment, and those differences shape where surprises tend to show up.

The tax rules may be similar on paper. The execution environment is not.

The Core Difference: Liquidity and Tax Collection

Most of the contrast between private and public company equity comes down to two things:

  • How taxes are collected

  • Whether liquidity is readily available

Those two factors drive how stressful equity events feel.

Tax Collection: Automated vs Manual

In public-company settings:

  • Withholding is often built into certain equity events

  • A visible market price exists

  • Shares can usually be sold to generate cash, subject to policies

Because systems are designed around a live market and accessible liquidity, taxes often feel smoother to handle.

In private-company settings:​

  • The experience is more manual

  • Withholding may not occur automatically

  • Tax exposure can be triggered without an easy way to turn equity into cash

Same basic tax rules. Very different experience.

This is why private-company equity often creates tax timing stress, even when the underlying tax treatment is understood.

Valuation Differences:

Public companies

  • Market price is visible and updated continuously

  • Taxable values are generally easy to determine

Private companies

  • Valuation often relies on a 409A or other internal methodology

  • The value may feel abstract or disconnected from liquidity

Valuation uncertainty does not change the tax rules, but it can make tax outcomes feel harder to plan around.

Early exercise availability:

Early exercise appears far more often in private-company plans and is much rarer once a company is public.

High-level reasons include:

  • Plan design choices in early-stage companies

  • Administrative simplicity once a company operates at scale

  • Reduced need for early ownership structures post-IPO

Once a public market exists, many programs shift toward designs that are easier to administer and align with payroll systems.

Why 83(b) is more common Pre-IPO:

An 83(b) election comes up when:

  • Unvested shares are issued up front, and

  • Those shares are subject to vesting or repurchase

That configuration is more common earlier in a company’s lifecycle, often through restricted stock awards or early exercise of options.

As companies mature and move toward public markets, equity programs more often shift toward:

  • RSUs

  • Standard option exercise timing

  • Structures where shares are not issued before vesting

As a result, 83(b) elections are discussed far more often pre-IPO and much less frequently later, though they can still exist in certain structures.

For deeper context, see 83(b) Election Explained.

Liquidity Constraints Still Exist in Public Companies:

Public does not mean frictionless.

Even with a public market:

  • Trading windows may limit when shares can be sold

  • Blackout periods can delay liquidity

  • Company policies can restrict transactions

Liquidity exists, but it is not always immediate or perfectly timed with tax events.

Common questions:

What is a 409A valuation?

A 409A valuation is a reference point used to estimate fair value in private-company settings. It is not a live market price.
 

Why can taxes feel worse before liquidity?

Because tax impact can be triggered by an equity event even when you cannot easily sell shares to create cash.
 

Are public-company equity events always easy?

No. Liquidity exists, but blackout windows, trading policies, and timing constraints can still create friction.
 

Why is 83(b) more common pre-IPO?

Because unvested shares issued up front, often through early exercise or certain restricted stock setups, are more common earlier in the company lifecycle.
 

Where can I learn when stock options are taxed?

See When are stock options taxed? for the grant -> vest -> exercise -> sale timeline.

To Discuss your Equity Compensation and Wealth Management Needs:

Arc Element Wealth Design is a Nebraska-registered investment adviser. This material is provided for general educational and informational purposes only and does not constitute individualized financial, legal, or tax advice. Examples are simplified and may not reflect your specific circumstances. Investing involves risk. For full disclosures, visit:  Disclosures

bottom of page